Actual and Perceived Financial Sophistication and Wealth Accumulation: The Role of Education and Gender

Abstract

This study examines the role of actual and perceived financial sophistication (i.e., financial literacy and confidence) for individuals' wealth accumulation. Using survey data from the German SAVE initiative, we find strong gender-and education-related differences in the distribution of the two variables and their effects on wealth: As financial literacy rises in formal education, whereas confidence increases in education for men but decreases for women, we observe that women become strongly underconfident with higher education, while men remain overconfident.Regarding wealth accumulation, we show that financial literacy has a positive effect that is stronger for women than for men and that is increasing (decreasing) in education for women (men). Confidence, however, supports only highly-educated men's wealth. When considering different channels for wealth accumulation, we observe that financial literacy is more important for current financial market participation, whereas confidence is more strongly associated with future-oriented financial planning. Overall, we demonstrate that highly-educated men's wealth levels benefit from their overconfidence via all financial decisions considered, but highlyeducated women's financial planning suffers from their underconfidence. This may impair their wealth levels in old age.JEL Classification: D91, G11, D83, J26

Understanding the Path Toward Financial Well-Being: Evidence From India

“…The results imply that individuals with higher confidence in their financial skills have higher responsible FinBs. This observation is consistent with the results of Bannier and Neubert (2016), Farrell et al (2016), and Fernandes et al (2014, those asserted that greater confidence is linked with responsible FinBs, such as higher investments, savings, the likelihood of retirement planning, and better credit score. Allgood and Walstad (2016) found the confidence level to have a more substantial influence on the financial behaviors (FinBs) as compared with financial knowledge.…”

“…Literature highlights a positive relationship between financial literacy and FinBs (Allgood and Walstad, 2016;Bannier and Neubert, 2016). The financial outcome that is part of the study is FWB, which is mainly reported to have a positive correlation with financial literacy (Addin et al, 2013;Sabri and Zakaria, 2015).…”